MPS: A timid approach?

The Monetary Policy Committee changed its heart yet again as the policy rate remained unchanged at 6 percent against the market expectation of a 25 basis points hike. Given the external stability challenges, monetary tightening and exchange rate adjustments was warranted in Jan18; and seeing the subdued inflation and not too high money demand coupled with some short term respite in current account deficit, no change in policy rate in March makes sense.
However, the catch is in the contradictions in monetary policy statements and minutes of monetary policy committee. There is visible shift from a dovish stance in Nov17 to a hawkish one in Jan18 and again doves seem to dominate in Mar18. That is not warranted. In Nov17, eight of nine members were for no change while in Jan18 eight of nine members were for rate hike and another one eighty degree shift might have taken place in Mar18 too.
At one point (Jan18), the stability is being challenged with indication of positive output gap (means demand exceeds supply), according to MPC minutes, to justify a rate hike. This was starkly different from Nov17 minutes/statement and now in Mar18, the excess supply capacity to absorb demand is used as a rationale for no change.
How can macroeconomic fundamentals swing from one pole to another and back in a matter of four months? How can an economy move from demand exceeding supply, to excess supply, to meet a growing demand in two months? It seems like monetary policy decisions are premeditated and statements are tailored to the ground decisions. That is a dangerous trend and could place MPC's credibility to question.
The research houses and economists take the MPC minutes and MPS too seriously and tweak their models and forecasts accordingly. But now with such abrupt changes, the inherent strength of MPC/MPS words are compromised.
In January 2018, risks to stability were narrated - MPC meeting minutes Jan18 lamented "it was discussed that developments in the external sector and fiscal deficit have been affecting the stability and that a continuation of this trend, if not challenged through timely and appropriate policy measures and blend could potentially pose risks to the medium-term sustainability of the economic growth momentum that started last year."
And here (MPS in Mar18), the narrative is flipped. The statement argued "However, recent adjustments stemming from greater exchange rate flexibility, active monetary management as well as visible improvements in exports and remittances are expected to bear fruit for medium-term in terms of sustaining the growth momentum without posing a risk to stability."
Yes, exports are getting better in the short to medium term, but there is no change in the trend. Exports are up in the past few months due to onetime exports of sugar ($315mn in Oct-Feb) and in coming months due to one-time exports of wheat. The government has given a contract of exporting 2 million tons of wheat surplus at $200 per ton to fetch $400 million before June.
Apart from these, there is an opportunity to capture in enhancing Basmati rice exports as since Jan18 Indian rice is banned in the EU. And yes, textile exports would remain better due to subsidy (4-7%) till June, cheap local cotton, and some benefit from recent rounds of currency depreciation.
The current account deficit has tamed down a bit. The support from exports factors mentioned above and low energy related imports would do the trick. Feb-Mar period has the least domestic and commercial energy usage due to mild weather, hence low energy imports. The lower CAD in March can be sensed by a lower fall in reserves in the last few weeks.
Having said that, CAD pressure may start emerging in summer when the electricity demand touches peak. This may push fiscal deficit. Clearance of circular debt is almost a reality now (Read: Circular debt clearance 2.0 in today's column), and election related spending would push FY18 fiscal deficit further. So, the medium to long term stability challenges are still intact.
Inflation was never a concern as it may remain low even after the depreciation in the recent past, as domestic food items are already at premium to international prices. Inflation should not be an anchor when the macroeconomic stability is challenged by slippages in fiscal and current accounts. And any short-term changes in one of these indicators, without any fundamental shift, should not change the narrative. The SBP cannot and should not change the goals so abruptly.